Money and Banking in Search Equilibrium*
Year: 2005
Type: article
Abstract: We develop a new theory of money and banking based on the old story in which goldsmiths start accepting deposits for safe keeping, then their liabilities begin circulating as media of exchange, then they begin making loans. We first discuss the history. We then present a model where agents can open bank accounts and write checks. The equilibrium means of payment may be cash, checks, or both. Sometimes multiple equilibria exist. Introducing banks increases the set of parameters for which money is valued–thus, money and banking are complements. We also derive a microfounded version of the usual money multiplier.
Source: International Economic Review
Authors: Ping He, Lixin Huang, Randall Wright
Language: English
Topic: Economic theories and models
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2152139478